Tyler Morgan Scandalios, DAB CR5686 (2020)

DECISION

I issue this decision dismissing Petitioner’s request for hearing because Petitioner does not presently have a right to a hearing to dispute the amount of debt incurred while Petitioner was employed at the Food and Drug Administration (FDA), a component of the U.S. Department of Health and Human Services (HHS).

I.  Procedural History

On July 9, 2020, Petitioner filed a HHS-710 form to request a hearing to dispute the amount of a debt allegedly owed to HHS.  Petitioner also filed a memorandum in support of the hearing request (P. Memorandum) and six attachments (P. Atts. A-F).  On that same day, Petitioner filed an addendum to the memorandum.

On July 13, 2020, I acknowledged receipt of Petitioner’s hearing request and ordered Petitioner to show the legal authority that conferred on him the right to a hearing.  Petitioner timely responded (P. Response) and included three attachments (P. Atts. 2A-2C).  HHS timely replied (HHS Reply) and included two exhibits (HHS Exs. 1-2).

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II.  Background

Petitioner became a federal employee when he commenced working at the Social Security Administration in 2012.  Petitioner received his health insurance through his federal job.  In February 2014, Petitioner transferred to the FDA, which is an agency within HHS.  When transferring, Petitioner opted to keep the same health insurance he had at the Social Security Administration; however, during the transfer, FDA mistakenly failed to ensure that it would deduct Petitioner’s share of his health insurance premium from Petitioner’s salary.  Petitioner left federal service in April 2019.  P. Memorandum at 2.    

In February 2020, Petitioner discovered that FDA was still paying for his health insurance, even though Petitioner was no longer a federal employee and had new health insurance through his private sector job.  P. Memorandum at 2.  From approximately mid-February to mid-March 2020, Petitioner communicated with FDA representatives in an effort to ensure that Petitioner’s health insurance was cancelled.  During those communications, Petitioner learned that FDA had paid his entire health insurance premium during his tenure at FDA and that Petitioner might have to pay that money back.  P. Att. A.

In a March 14, 2020 letter, the agency that handles HHS’s payroll, the Defense Finance and Accounting Service (DFAS), informed Petitioner of an alleged overpayment of $2,635.52, which had been generated on his pay account as a result of a “Personnel Transaction” occurring between the pay periods ending March 31, 2018 through April 27, 2019.  P. Att. B at 2-3; P. Memorandum at 2.  On April 11, 2020, DFAS sent another letter informing Petitioner of a further overpayment of $8,180.40, as a result of a “Personnel Transaction” occurring between pay periods ending February 22, 2014 through March 17, 2018.  P. Att. C at 2-3; P. Memorandum at 2.  Each letter informed Petitioner that if he did not promptly repay the debt, DFAS would offset the debt from his federal salary.  The letters also informed Petitioner of his right to a hearing to dispute the existence of the debt, the amount of the debt, or the repayment schedule for the debt, as provided under 5 U.S.C. § 5514.  The letters also indicated that Petitioner could request a waiver of the debt.  P. Att. B at 2-3; P. Att. C at 2-3.

On April 15, 2020, Petitioner communicated with FDA personnel about the DFAS letters.  P. Att. D.  By April 23, 2020, the collection of Petitioner’s alleged debt was transferred from DFAS to HHS’s Program Support Center (PSC) because Petitioner was no longer a federal employee and it was determined that the DFAS letters had been sent to him in error.  See P. Att. E at 8; P. Memorandum at 3.  Petitioner had email exchanges with a PSC representative about the interest rate that the PSC would charge on the debt.  P. Att.

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E at 1, 3-6; P. Memorandum at 3-4.  Also during April 2020, Petitioner requested that FDA waive the debt.  P. Att. E at 2, 8; P. Memorandum at 3. 

The PSC issued two letters to Petitioner dated April 25, 2020, which stated that Petitioner owed $8,180.40 and $2,635.52.  The letters also stated that Petitioner needed to repay that money within 30 days or HHS would apply a 9.625% interest rate to the owed balance.  P. Att. F at 1, 5.  In two letters dated May 23, 2020, the PSC informed Petitioner of the two debt amounts from the previous letters and that a failure to pay or arrange to pay the debt “may result in an administrative offset by the United States.”  P. Att. F at 2, 6.  In two letters dated June 24, 2020, the PSC informed Petitioner that this was the final notice to pay the debts previously identified and specified that a failure to pay meant “your account will be referred to the Internal Revenue Service for offset of your federal income tax return.  If you are a federal employee or an employee of the United States Post Office, your account will be referred to the appropriate agency for salary offset.”  P. Att. F at 3, 7.  The letters also warned that the PSC could refer information concerning the debt to consumer reporting agencies and transfer the debt to a private debt collection agency or the Department of Justice.  P. Att. F at 3, 7.  In two letters dated June 27, 2020, the PSC informed Petitioner that it had referred the debt to a collection agency named Transworld Systems, Inc.  P. Att. F at 4, 8. 

On July 7, 2020, Petitioner emailed his PSC contact that he had just received the June 24, 2020 final notices, but had not received any previous notices.  P. Att. E at 1.  On July 9, 2020, the PSC representative responded that she had recalled the debt from the debt collector.  The PSC representative said she set September 21, 2020, as the date by which Petitioner needed to repay the debt or establish a repayment agreement.  After that time, the PSC would send the debt back to the collection agency.  P. Att. 2A. 

On July 12, 2020, the FDA, under 5 U.S.C. § 5584, waived half of the debt that Petitioner owed.  HHS Ex. 1.  On July 30, 2020, the PSC issued a corrected initial demand letter indicating that Petitioner’s debt was $5,407.96 based on non-payment of health insurance premiums from February 9, 2014 through April 27, 2019, and that Petitioner had 30 days to pay the debt.  HHS Ex. 2 at 1.  The letter further stated that if Petitioner did not pay the debt within 30 days, then the PSC would assess interest, administrative costs, and late penalties.  HHS Ex. 2 at 2.  The letter also provided information as to how Petitioner could request a repayment agreement.  HHS Ex. 2 at 2.  Finally, the letter stated that if Petitioner did not fully repay or execute a repayment agreement within 30 days, then the PSC may enforce collection of the debt by:  offsetting any federal payment owed to Petitioner, including tax refunds, salary, certain benefit payments such as Social Security, retirement, vendor, and travel reimbursements and advances; imposing administrative wage garnishment; referring Petitioner’s debt to a private collection agency; reporting the debt to consumer reporting agencies; referring Petitioner’s debt to the Department of

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Justice to seek enforced debt collection through litigation; or referring the debt to the Department of the Treasury for any of these collection actions.  HHS Ex. 2 at 2.

III.  Discussion

Before adjudicating the merits of a debt collection matter, an administrative law judge (ALJ) must determine whether he has jurisdiction to review the debt collection actions in a given matter.  See Petra A. Illig, M.D., DAB CR2559 at 2 (2012).  Put another way, I must ensure that Petitioner has a right to a hearing before an ALJ to dispute his debt.

Petitioner asserts that he has a right to a hearing in this matter because:  1) HHS has failed to provide Petitioner with the applicable standards for imposing the 9.625% interest on the debt, as required by 45 C.F.R. § 30.11(b)(1)(iii); 2) HHS has made it clear that it will seek administrative offset if payment is not received and Petitioner has a right to a hearing under 45 C.F.R. § 30.12(c)(2) related to administrative offset; and 3) administrative resolution of the issue regarding the imposition of a 9.625% interest rate is appropriate.  P. Response at 1.  Although Petitioner did not identify a right to a hearing when HHS refers a debt to a private collection agency, Petitioner asserts that a necessary outcome to such an action would be a report of the debt to a consumer credit reporting agency and, that Petitioner has a right to dispute the accuracy of the information disclosed to a consumer reporting agency and to request review within HHS of the debt or schedule of payments under 45 C.F.R. § 30.13(a)(5).  P. Response at 2.  Petitioner also wants me to enforce the requirement in 45 C.F.R. § 30.11(b)(1)(iii) that the debt demand letter include the applicable standards for imposing any interest, which Petitioner alleges was not done by HHS.  P. Response at 2.  Petitioner further argues that HHS has made it clear that it intends to use administrative offset to collect the debt if Petitioner does not pay it, and it is Petitioner’s understanding that HHS will send debts for offset without further notice.  P. Response at 3.  Petitioner indicated that 45 C.F.R. § 30.12 expressly provides a right to a hearing related to administrative offset.  P. Response at 3.  Finally, Petitioner asserts that HHS intends to charge an interest rate that is improper under 31 U.S.C. § 3717.  P. Response at 4. 

HHS disagrees that Petitioner has a right to a hearing in this matter.  HHS argues that the right to a hearing only attaches when HHS decides to employ certain types of debt collection methods.  Specifically, there is a right to a hearing when HHS is going to collect the debt by administrative offset, federal salary offset, or administrative wage garnishment.  HHS Reply at 2, 8-9.  HHS asserts that since HHS is not presently employing any of those debt collection methods, Petitioner does not have a right to a hearing.  HHS Reply at 10.  In this case, HHS has only indicated that it may pursue administrative offset or administrative wage garnishment in the future.  HHS Reply at 10; HHS Ex. 2.  Further, HHS argues that HHS cannot recover the debt from Petitioner using

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federal salary offset since Petitioner is no longer a federal employee.  HHS Reply at 11.  Finally, HHS disputes that it made any error with regard to its notice letters and the interest rate that it intends to assess on any debt that Petitioner fails to repay.1   HHS Reply at 12-14. 

Federal agencies are to attempt to collect debts owed to them and, before discharging a debt, are to take all appropriate steps to collect the debt, including:  administrative offset; tax refund offset; federal salary offset; referral to private collection contractors; referral to agencies operating a debt collection center; reporting delinquencies to credit reporting bureaus; garnishing the wages of delinquent debtors; and litigation or foreclosure.  31 U.S.C. § 3711(a), (g)(9).

The joint Department of the Treasury and Department of Justice regulations implementing the debt collection statutes require that an agency send a debt demand letter that states the “basis for the indebtedness and the rights, if any, the debtor may have to seek review within the agency.”  31 C.F.R. § 901.2(b)(1).  HHS’s regulation on this subject contains similar language, but specifies notice must be given for the right to request a hearing for federal employee salary offset and administrative wage garnishments.  45 C.F.R. § 30.11(b)(1)(iv)(A).

HHS’s regulation reflects the fact that an individual’s right to review or a hearing of a debt depends on how HHS goes about collecting the debt.  As stated in HHS’s regulation above, HHS pointed out that notice of hearing rights must be provided for federal salary payment offset and administrative wage garnishments.  Because the statutes related to those methods of debt collection require notice and an opportunity for an informal hearing, there is no doubt a hearing must be conducted when an agency seeks to collect a debt in those ways and the debtor requests a hearing.  5 U.S.C. § 5514(a)(2)(D); 31 U.S.C. § 3720D(b)(5), (c); 45 C.F.R. §§ 32.4-32.5, 33.4, 33.6.

In the present case, DFAS originally gave notice of a federal salary offset and a right to a hearing, but HHS concluded that federal salary offset was not applicable because Petitioner undisputedly is no longer a federal employee.  45 C.F.R. §§ 33.2 (definition of

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Employee), 33.3(a); see 5 U.S.C. § 5514(a)(1).  Therefore, although DFAS originally notified Petitioner of hearing rights due to federal employee salary offset, HHS cannot use that method of debt collection.  See Suzanne R. Bergman, DAB CR1282 (2005).

Further, while the PSC has mentioned the possible use of administrative wage garnishment, it has yet to provide notice that it will attempt to collect the debt using that debt collection authority.  31 U.S.C. § 3720D(b)(2) (agency must provide a minimum of 30 days notice before “initiation of proceedings.”); 45 C.F.R. § 32.4.  Until the PSC provides express notice that it will issue an administrative wage garnishment order, Petitioner has no right to a hearing simply because the PSC listed this as one potential method of collection.

As indicated above, Petitioner particularly bases his claim to a right to a hearing because the PSC has indicated the potential use of administrative offset and tax refund offset.  As an initial matter, it is important to note that separate rules apply to administrative offset generally and tax refund offset.

For administrative offset, it is significant that an executive agency may collect a claim from a person through administrative offset only after first attempting to collect the debt by issuing a notice.  31 U.S.C. § 3716(a).  However, if an agency ultimately resorts to administrative offset, then the agency must issue another notice indicating the agency’s intention to collect the debt by administrative offset.  31 U.S.C. § 3716(a)(1).  That notice must include notice of “an opportunity for a review within the agency of the decision . . . .”  31 U.S.C. § 3716(a)(3).  Petitioner is correct that HHS has decided that the review in administrative offset matters will take the form of a hearing.  45 C.F.R. §§ 30.2 (definition of Hearing); 30.12(e).  However, again, the PSC is not presently seeking to implement administrative offset.  Therefore, Petitioner does not have a right to a hearing on this basis.  See Bergman, DAB CR1282.

Although the PSC mentioned tax refund offset as a potential method of collecting the debt in this matter, it did not expressly give notice that it was referring the debt for tax refund offset.  Further, while it is true that the agency must first give notice that an individual has at least 60 days to present evidence that all or part of the alleged debt is not past-due or not legally enforceable, and must consider any evidence presented by the individual, there is nothing that indicates that this review would be conducted by an ALJ.  See 31 U.S.C. § 3720A(b)(2)-(3); 45 C.F.R. §§ 31.5-31.7. 

Petitioner also argues that there is a right to a review of a debt before a debtor can be referred to a credit reporting agency.  Petitioner links referral of a debt to a collection agency with referral to a credit reporting agency.  However, the provision on contracting with collection agencies does not have a provision indicating there is a right to a hearing

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relating to debts referred to those agencies.  31 U.S.C. § 3718; 31 C.F.R. § 901.5; 45 C.F.R. § 30.14.  Further, while there is a right to a review in relation to a referral to a credit reporting agency, the PSC did not give notice that this would happen and, in any event, the review is not a hearing before an ALJ.  See 45 C.F.R. § 30.13(a)(5). 

Finally, Petitioner asserts a hearing right because HHS allegedly failed to properly calculate or explain the basis for the interest amount it would apply in Petitioner’s case.  However, there is no express right to a hearing or review regarding the imposition or calculation of interest on a debt.  See 31 U.S.C. § 3717; 45 C.F.R. § 30.18. 

IV.  Conclusion

Based on the foregoing, I conclude that Petitioner does not presently have the right to a hearing before an ALJ to dispute the amount of the debt that HHS indicates that he owes.  Therefore, I dismiss Petitioner’s hearing request.

1. As part of its argument, HHS asserts that the doctrine of sovereign immunity provides a basis for dismissing Petitioner’s hearing request.  HHS Reply at 12.  The legal concept of sovereign immunity is simply “[a] government’s immunity from being sued in its own courts without its consent.”  Immunity, Black’s Law Dictionary (11th ed. 2019).  However, as indicated above, the question in this matter is whether Petitioner has the right to an administrative hearing with an HHS ALJ to dispute the amount of the debt that HHS alleges he owes.  Because Petitioner’s hearing request is not a lawsuit and this tribunal is not a court, sovereign immunity is inapplicable in this case.
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